Pakistan’s economy appears to be showing real signs of recovery during the first couple of months of the current fiscal year with the increase in economic activities throughout sectors, a decline in inflationary figures, and greater fiscal restraint.

Key growth drivers include resumption of large-scale manufacturing, favorable external environment, and an increase in FDI, and with the stock market trend going up, coupled with remittances continually providing critical support, the government has indicated determination in pursuing fiscal consolidation and monetary easing toward sustained good economic stability.

Large-scale manufacturing is recovering from the decline in its recent past. The major export industries are gearing up to increase their production. Industrial growth will also get a favorable external environment, stable exchange rates, and easing pressures on inflationary fronts. More importantly, it would get the support of favorable monetary policy, increased investor confidence, and a reviving global market. The government’s proposed fiscal consolidation is likely to improve the fiscal health of the country, the Finance Division said in the latest Economic Update and Outlook.

Weather conditions are expected to dominate Rabi 2024 output. The Rabi season ranges from October 1 to March 31. Wheat, gram, lentils, potatoes, onions, and tomatoes are the crops typically planted during this season.

The pace of inflation is also expected to hover within 8-9 percent up to October 2024. Exports and imports are expected to gain momentum. Exports are expected at between $2.5 billion and $3 billion in September 2024. Imports are seen falling at between $4.5 billion and $5 billion. Workers’ remittances are likely to be at between $2.7 billion and $3.2 billion.

Inflation has dipped into single digit for the first time in nearly three years, while the Consumer Price Index (CPI) in August 2024 increased by 9.6 percent over the past year, against 27.4 percent a year earlier. The slump in inflation was blamed on lower food prices and energy costs, among others. On a monthly basis, inflation edged up only by 0.4 percent as inflationary pressure eases ahead.

The second most important component of Pakistan’s industrial sector after energy, large-scale manufacturing (LSM), entered the growth mode once again by recording a 2.4 percent growth in July 2024 with a 12th successive month of contraction. All the big sectors-textiles, food, chemicals, and automobiles-turned the corner and were back in the growth league. But what added to the cheer was that even textile manufacturing-the largest constituency in the LSM-finally came out of its 24-month recession. The country witnessed decent growth in car production and sales. Car production increased 15 per cent. Truck and bus production surged by 120.4pc from July-August FY2025. There are sectors continuing in a tailspin, like cement, where dispatches fell 17.8pc against the same period last year.

Pakistan’s external account actually fared better, helped by more exports and remittances despite imports. FY2025 current account posted a deficit of $0.2 billion for July-August as against last year’s corresponding period with $0.9 billion in deficit. Crucially, August 2024 surplus was $75 million. Goods exports rose by 7.2 percent to $4.9 billion, while imports gained to $9.5 billion, leaving behind a deficit of $4.7 billion.

The country’s service exports improved marginally at 0.2 percent to $1.2 billion, with service imports declining by 0.5 percent to $1.7 billion, which resulted in a deficit of $0.47 billion. IT exports increased to 30.2 percent at $0.6 billion while FDI went up by 55.5 percent to $350 million.

Remittances from workers boosted sharply by 44 percent to $5.9 billion, mainly on account of inflows from Saudi Arabia, which accounted for 25 percent. Cumulative foreign exchange reserves add up to $14.9 billion, with the State Bank holding $9.5 billion of that money.

Such is the resilience that the fiscal sector manifested as net federal revenues surged 7.2 percent year-on-year in July FY2025 to Rs408.4 billion. Tax revenues shot up 22.6pc and non-tax revenues, including that of the petroleum levy which recorded a touch above Rs83.6 billion, upped 20.5pc. Total expenditure increased by 19.2 percent to Rs768.6 billion, a fiscal deficit of 0.3 percent of GDP, barely above the 0.2 percent recorded in the previous year, though this will consist partly of interest. The primary balance presented a surplus of 0.1 percent of GDP, down from 0.3 percent in the previous year.

The Federal Board of Revenue reported 20.6 percent growth in net collection to Rs1.456 trillion during Jul-Aug FY2025, against Rs1.207 trillion in the same period a year ago. Tax collection surged by 19 percent to Rs796 billion in August 2024 against Rs669 billion, according to the board.

In the month of September 2024, it further surged because the inflationary pressure that had surged was easing, and inflation expectations were improving while business confidence was gathering steam. On September 12, the Monetary Policy Committee reduced the policy rate by 200 basis points to 17.5 percent. The money supply (M2) was at Rs962.3 billion decreased by 2.6 percent over July 1 to August 30, FY2025, against 1.4 percent decline Rs449.5 billion over FY2024. KSE-100 Index. Aug 2024: on around 78,000 points it closed on 78,488 with a gain of 601 points. Market capitalization rose by Rs117 billion to reach Rs10,485 billion.

The weekly inflation rate recorded by the Sensitive Price Indicator stood at 12.8 percent year-on-year and, in doing so, posted the lowest figure since September 2016. The SPI priced core items, such as food and house-to-household requirements, witnessed a 0.05 percent increase on week-to-week terms. The 12.8 percent year-on-year SPI is the lowest since October 2021, when its levels started to peak at the September 2021 high of 49.29 percent then reached a record high of 48.35 percent in May this year. Weekly inflation has been in double digits since February 2020.

Notwithstanding sectoral imbalances, increased expenditure and the rest, the country’s strengthening fiscal accounts, growing investor confidence, and positive external conditions do lend an illusion of stability to its persistence growth. Pakistan’s economic recovery is taking very good shape with growth coming in exports, FDI as well as remittances, while the inflation environment is also showing tendencies of easing off. The industrial and agricultural sectors, therefore, appear to have good prospects for the future with the favorable state of fiscal reforms from the government as well as supportive monetary policies, thereby by proxy contributing toward overall economic recovery.